THE WEIGHT OF Q1FY14 NUMBERS - CRUSHING?
By Ruma Dubey
It is once again results time. 30th June is over and gone and like always, with nothing really to look forward to, markets are training their eyes on Q1FY14 numbers to get cues for the future.
Q1 numbers are not crystal gazing; it is more about looking into the past three months and it is the past experience which is expected to give cues for the coming months. Today, the moods remain despondent, much more pessimistic than what they were at the end of Q4FY13. The first three months of the current fiscal were troubled, with rupee v/s the US dollar slipping to its lowest ever levels, food inflation remaining high and demand showing a slowdown. It has also been a time of extreme global uncertainty, with China facing a slowdown and a tight liquidity scenario and USA planning to start easing QE, the biggest worry of the emerging markets today. The US economy is slowly but surely bouncing back and job data has been good but the markets are not happy as this signals easing of QE, a life without stimulus might now be possible. Thus in this background, to expect India Inc to come out shinning would be naïve or rather foolish.
Globally too, this is results time, Q2 numbers; and that too will set the mood in the coming days. Companies in the Standard & Poor's 500-stock index are expected to report a meager 0.7% rise in quarterly earnings from a year earlier, according to analyst forecasts complied by FactSet. Revenues are expected to climb up by 1%. Expectations are low but meeting these estimations might also be tough for companies – that is the word on the streets. And there, sectors which are poised to do well are financial firms, banks and IT. Materials and industrial sector companies are expected to go through some more pain.
And in India too, many sectors are expected to take a hard hit. Seasonally too, Q1 is not exactly the best time of the year for majority of the companies. IndusInd Bank will announce numbers on 10th July and Infosys on 12th July, the same day as the IIP data comes in for May. In banking, the four factors to keep a watch on would be the spreads, loan growth, asset quality and guidance.
IT sector would be eyed with great expectations given the depreciating rupee vis-à-vis the US dollar. Most are banking on TCS and HCL while uncertainty on Infosys continues to dog the sentiments. Given the sharp depreciation of the rupee, rupee earnings of IT companies with over 60% exports to USA are bound to show a spike up if accompanied with volume growth.
In Q1FY13, raw material costs may not be a cause for worry as commodity prices have eased a bit; the worry is not as acute as in FY11 and FY12 but yet worry about costs remains intact. More so, on power and fuel costs. Margins could get dented due to these operating costs and also higher interest outgo costs and in many cases, falling demand. IIP numbers have more or less shown us what to expect – a growth rate which is slowing down.
Auto sector is largely expected to be subdued while auto ancillaries, too could start showing signs of a slowdown. Cement numbers are also expected to be muted. Realty companies too could show poor numbers but sale of assets by many could keep the bottomlines from getting dunked in the red though debt will continue to remain a big worry. Private banks could show good numbers, keeping up the robust performance. FMCG too are expected to show a set of good numbers. Hospitality and airlines could show signs of trouble as seasonally, the first half it not their best. Tyre companies which were amongst the worst hit due to soaring rubber prices, could see some improvement as prices have eased. Metal companies could see lower realisations and mining sector continues to remain clogged. Pharma companies might prove to be best antidote for this lacklustre growth story.
Agro based companies, especially fertilizers, especially gas based and pesticide companies usually have the best performance in Q1 and Q2. Capital goods companies are expected to remain muted – though order intakes have been pretty robust and one only hopes that execution has also kept pace. In commodity specifically, watch out for results of rice and tea companies.
Bottomline – Q1 could have more of a negative bias and we should be prepared for some tough times ahead. Unless some impetus is given by the Govt, looking ahead, things look sticky.